Wednesday, November 21, 2007

The bureaucratic cycle - Part 3

We are interested in the latter part of the cycle, and how it destroys wealth and talent. Most companies cannot survive a slide to the third phase, because of factors that give immediate feedback. Depending on the strength of their monopoly, they can have a very long middle phase. As well, bringing in a brilliant talent at the top can reverse the cycle, since pockets of beleaguered talent can remain for some time. An example is the recent uptick of GM under Bob Lutz (who revived Chrysler for a while).

A typical story about talent destruction is as follows. Brilliant young thing (BYT) enters company. They are capable of bringing in 10 times the revenue of the average mediocre employee. BYT starts shaking things up, saving tons of money, etc. But, by definition, they have to go beyond the system to get things done, such as Internet access, hours of work, conferences, etc. Soon mediocre employees whine: why do they have Internet access, come in late, talk to directors, etc. Company clamps down on everyone.

Sometimes BYT has protection of some upper management, most likely not. They become bitter and cynical. One in ten succeeds, and this becomes food for the propaganda machine. When you talk to BYT's, they express great frustration.

Organizations with a political mandate can go on forever in the third stage, but now something can really kill them. Mainly, that they can no longer find large numbers of BYT's to burn, since BYT's trapped on the inside can now communicate with each other. The collective intelligence of these places goes down to that of a poodle. More and more big disasters happen. Their mandate becomes questioned by the dumber politicians, and they descend quite rapidly.